Selling diamonds and buying more gold

“The U.S. government has a technology, called a printing press (or today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at no cost.” — Ben Bernanke 2002

“With respect to their safety, derivatives, for the most part, are traded among very sophisticated financial institutions and individuals who have considerable incentive to understand them and to use them properly.” — Ben Bernanke 2005

“I’ve never been on Wall Street. And I care about Wall Street for one reason and one reason only because what happens on Wall Street matters to Main Street.” — Ben Bernanke 2008

We know that the banks have rigged/manipulated the markets in:

LIBOR

Derivatives

AIG

TARP

Energy

Rehypothecation

Treasurys

Fannie Mae

Freddie Mac

Dot-com bubble

MF Global

Mortgage documents

HAMP

High-Frequency Trading

Foreclosure Reviews

Have you ever noticed that despite the banks and their enablers’ best efforts, that these scams and riggings always blow up at some point anyway? Turns out that the market forces and the balances of supply/demand and free choice always work their way back in at some point.

If you’re a giant too-big-too-fail bank and:

you’re the custodian of the biggest gold and silver exchange-traded funds

you’re also trading derivatives on interest rates, mortgages and gold and silver,

you’re holding less real physical bullion than you have in years

you’ve been short and have been advising your clients to get short gold and silver

you’re in cahoots with the Fed and the government desperately trying to keep the dollar propped up and rates down

you can borrow money at 0% interest and never have to worry about paying it back if you blow it up gambling/trading/rigging the markets because you’ll get bailed out

you know that you don’t even have to pay back the bailout money

you don’t ever have to worry about going to jail for anything you do as an executive or bigwig at any giant bank…

Would you be tempted to corrupt the markets too? My point here is that the silver and gold markets and the moves behind the scenes going on between the paper and the bullion markets and the increasing disparity between the price people have to pay for physical gold and silver versus what these banks and their enablers are saying the paper and spot prices are is indicative of a market about to come back into balance. And our analysis points to that balance being that the relative value in the market of gold and silver right now is much higher versus the dollar than the banks are pretending it is.

Gold and silver markets are much smaller than the total stock market which is much smaller than the total bond market which is much smaller than the total derivatives market. Meaning that gold and silver are probably some of the easiest to try to manipulate right now. I don’t know how long these imbalances between the dollar and precious metals can go on and it can get worse before it gets better — these banks and their regulators and the government are desperate and willing to take us all the way to the ledge. I’m going to double the size of my Market Vectors Gold Miners ETF
/quotes/zigman/420125/quotes/nls/gdxGDX call position that I started building yesterday. I still have ammo to build it up further if the gold miner stocks decline further in the next day or so.

But as I’ve been saying for the last couple months, I have started rebuilding my own physical gold and silver assets and plan to do so steadily over the next year or so. I am trying to continue to take advantage of the continued declines in gold and silver by buying more gold and silver coins and bullion. But you have to be patient and willing to find the right seller because, as I said above, most people are paying a bigger spread for those coins and bullion over the paper/spot prices than ever before.

About The Cody Word

Cody Willard writes the Revolution Investing investment newsletter for MarketWatch and posts the trades from his personal account at TradingWithCody.com He is the founder of WallStreetAll-Stars.com and the principal of CL Willard Capital. Cody serves as an adjunct professor at Seton Hall University and is on the University of New Mexico Alumni Board. He was an anchor on the Fox Business Network, where he was the co-host of the long-time #1-rated show on the network, Fox Business Happy Hour. Cody, a former hedge fund manager, and his stock picks and economic outlooks have been featured on NBC’s The Tonight Show with Jay Leno, ABC’s 20/20, CBS Evening News, CNBC’s SquawkBox, Jon Stewart’s The Daily Show, as well as in the Financial Times, Wall Street Journal, New York Times, and many other outlets.